CUBA: DEVELOPING NEW WESTERN EXPORT STRATEGIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89S01449R000400350002-6
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 23
• Document Creation Date: December 27, 2016
• Document Release Date: January 2, 2013
• Sequence Number: 2
• Publication Date: August 1, 1988
• Content Type: REPORT

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Directorate of
Intelligence =
Cuba: Developing New
Western Export Strategies
A Research Paper
Secret
Secret
ALA 88-10041
August 1988
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Copy A fl p
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%\ Intelligence
Cuba: Developing New
Western Export Strategies
This paper was prepared by
Office of African and Latin American Analysis. It
was coordinated with the Directorate of
Operations.
Comments and queries are welcome and may be
directed to the Chief, Middle America-Cuba Division
Secret
ALA 88-10041
August 1988
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Cuba: Developing New
Western Export Strategies 25X1
Summary Since 1984, President Fidel Castro has focused Cuban export policies on
Information available increasing hard currency revenues in an attempt to balance foreign
as of 30 June 1988 financial accounts and shield the Cuban population from further austerity.
was used in this report.
Havana's export strategy-which combines the simultaneous expansion of 25X1
traditional export products with the development and marketing of nontra-
ditional products-has proved largely unsuccessful so far, however.
Attempts to expand hard currency earnings from traditional exports-such
as sugar, fish, nickel, tobacco, coffee, and citrus-have been undercut by
low production rates, declining world prices, and the growing diversion of
these products to Soviet Bloc countries under various bilateral trade and
aid agreements. Castro's efforts to develop nontraditional export products,
particularly in the electronics, biotechnical, and medical industries, have
been hindered by foreign exchange shortages and a lack of management
and technical expertise.
Similarly, Havana's attempts to attract new trade partners have been
undercut by Cuba's inability to finance the hard currency imports under
reciprocal bilateral trade agreements. Western investors also have respond-
ed poorly to recent aggressive Cuban initiatives designed to attract
investment to the export sector, such as the sponsoring of international
trade fairs and the relaxation of foreign investment restrictions.
We do not expect Cuba's export situation to improve significantly in the
next several years, largely because Cuba's Soviet Bloc benefactors and
Western creditors are unlikely to provide sufficient financial support.
Significant frictions since 1984 between Moscow and Havana over eco-
nomic policy have led to greater Soviet control over project aid and
increased pressure on Havana to meet its export commitments to the Soviet
Bloc. Without a turnaround in Cuban economic performance-preferably
with some commitment by Havana to Soviet-style reforms-we believe
Moscow will not significantly increase the hard currency assistance critical
for Cuban export development. At the same time, Havana's trade policy
failures and its inability to reschedule its $6 billion debt to Western
creditors will continue to limit Western credit flows to Cuba.
Continuing poor export performance suggests that tighter Cuban austerity
measures are inevitable. Reduced levels of consumption and increased
unemployment are likely to boost already rising domestic discontent. Such
Secret
ALA 88-10041
August 1988
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internal pressures may provide Havana incentives to make overtures to
Washington in an effort to reduce some of the restrictions of the US trade
embargo. The Cuban Government may also want to maintain the emigra-
tion agreement with the United States in order to provide an outlet for Cu-
bans disgruntled with the economic situation
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Summary
Background
Continuing Export Problems
Recent Export Strategies
Pushing Traditional Exports
3
Generating Nontraditional Exports
5
Better Marketing
6
Developing an "Export Mentality"
7
Implications for Cuba and the United States
11
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Scope Note This paper examines Havana's efforts to increase exports to the West in or-
der to improve its foreign financial position and domestic economic
conditions. It is the fifth of a series of assessments analyzing Cuban
economic performance since the Cuban export drive was launched in 1984.
he paucity of data available on recent Cuban
economic performance has limited the statistical base for this paper to the
largely cursory information Havana has provided to its Paris Club
creditors. Judgments in this assessment stem largely from
eporting from the US Interests Section in Ha-
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LOA1
vana, and the Cuban press. 25X1
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North
Pacific
Ocean
Industry
? Cement
Fertilizer
Flour milling
A Footwear
J& Nickel processing
A Petroleum refining
Steel mill
Textiles
Tobacco products
Matanzas
Coffee
Henequen
Rice
Sugar
ET/j Tobacco
1' Cattle
The
Bahamas 11
ba
7b
uri rj _ 1
(anamo
fusa.ai easel H
Jamaica
Caribbean Sea
Cu Copper
Cr Chromite
Mn Manganese
Ni Nickel
/North
At/antic
\Rcean
Santiago
de Cuba
Punta
s Gorda
Guantanamo
(US. Naval Base)
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Cuba: Developing New
Western Export Strategies
Background
deteriorate.
In late 1984, Havana began devoting significant
attention to reinvigorating hard currency export reve-
nues in order to support the high levels of Western
imports it judged necessary for domestic economic
growth.' In line with its new focus, Havana set a goal
for nonsugar hard currency export earnings to rise by
almost 60 percent by 1990, according to press state-
ments by the Cuban Minister of Foreign Trade. The
Cuban Government lowered interest rates for invest-
ments in export industries and planned to spend some
$5 billion annually to diversify exports-even as it
trimmed expenditures in all other sectors of the
economy. Havana's resolve to boost export revenues
intensified after 1984, moreover, as Cuba's hard
currency trade and current accounts continued to
corporations since 1962.
This paper examines Havana's strategies to increase
traditional and nontraditional export earnings, the
prospects that those strategies will succeed, and Soviet
Bloc and Western creditor frustrations with Cuban
economic policies. It also examines the implications
for the United States of Cuban export policies, includ-
ing Havana's continued efforts to evade the US trade
embargo-which has prohibited virtually all trade
and financial dealings with Cuba by US citizens and
Continuing Export Problems
Figure 1. Cuban President Fidel Castro
launched the nation's export drive in late 1984,
declaring encreased export revenues to be Cuba's
first priority. Castro has called on all Cubans to
adopt an "export mentality"without succumbing
Havana's plans to increase its foreign exchange in-
come have been undermined by a series of external
events:
? A hurricane in 1985 and persistent drought since
then have trimmed production of many traditional
agricultural export products-including sugar-
which had accounted for more than half of all hard
currency export earnings in the early 1980s.
only a partial recovery last year.
Cuban trade performance has weakened considerably
since 1984, despite the inauguration of Havana's
export drive. A series of economic developments be-
yond the government's control, along with counterpro-
ductive Cuban economic policies and technical and
financial constraints, have combined to weaken Cu-
ban export performance. From 1984 to 1986, hard
currency export earnings dropped 15 percent, with
' Included under the discussion of exports in this paper are mer-
chandise and service exports
? The downward spiral of world oil prices from 1984
to 1986 halved revenues from the resale of Soviet-
supplied oil-which had surpassed sugar sales as a
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Cuba. Hard Currency Earnings From Soviet Oil
In 1987, Cuba reported earnings of roughly $350
million from reexports of oil supplied by the Soviet
Union, representing the island's leading source of
foreign exchange. Havana receives approximately 13
million metric tons of oil from Moscow each year,
and it sells about a quarter of this allotment to
Western countries for hard currency. Soviet oil that
Cuba reexports does not physically pass through the
island, but is sold for Cuba by Moscow-usually to
West European customers. Cuba is trying to boost its
domestic production of oil in order to leave a greater
portion of its Soviet allotment available for export.
Havana pumped approximately 900,000 metric tons
of crude oil in 1987, and the Cuban Government
hopes to increase domestic petroleum production to 2
million tons per year by the end of the decade.
source of hard currency in 1983. Moscow apparent-
ly has refused to increase significantly the amount
of petroleum products available for Havana to
resell for scarce hard currency, according to official
Soviet and Cuban trade statistics.
? The relative decline in the value of the US dollar,
which Cuba receives for the bulk of its hard curren-
cy commodity exports, has cut the buying power of
its export earnings
Meanwhile, Havana's rigid economic policies since
1984 have severely limited its flexibility to deal with
growing trade imbalances and heightened production
problems in all export sectors. The Cuban Govern-
ment's failure to institute promised austerity mea-
sures-such as reducing hard currency imports-
aggravated Western creditors and slowed critical
trade financing and investment credit flows necessary
for export development. President Castro's economic
rectification campaign also removed some popular
work incentives, which have had a negative impact on
production by diminishing worker enthusiasm and
entrepreneurial initiative.
Cuban efforts to raise hard currency export revenues
have been hampered by several other factors, in our
judgment. A shortage of Cuban managerial and
technical expertise has heightened quality-control
problems in export and other economic sectors. As a
result, many Cuban products such as plastics, paint,
computer programing, and machinery have fallen
short of acceptable standards and have not sold well,
according to a number of Havana's Western trade
partners. Cuban clothing sent to Japan, for example,
has been outdated, of poor quality, and unseasonable,
while Cuban soap has crumbled upon use and its
coffeemakers have had a tendency to explode.
Cuba has had problems competing with other devel-
oping nations, which have better access to lucrative 25X1
Western markets. For example, other Caribbean na-
tions have preferential trade arrangements with West- 25X1
ern countries as members of the Commonwealth, by
virtue of their close association with France or the 25X1
Netherlands, or through qualification for the US
Caribbean Basin Initiative. 25X1
Finally, growing financial pressures have pressed Ha-
vana to cut those imports of Western goods and
technology critical to export development. From 1984
to 1987, declining export receipts contributed to more
than a threefold increase in Cuba's current account
deficit-to $900 million-and the near total draw-
down of foreign exchange reserves. Havana's inability
or unwillingness to balance its hard currency ac-
counts, moreover, aggravated Western creditors so
that debt negotiations with official Paris Club and
commercial creditors reached a standstill in 1986.
Consequently, Havana has turned to expensive, short-
term trade credits to finance the most critical inputs
for the export sector and elsewhere.
As its hard currency situation has worsened, Havana
has pursued more aggressively its dual export strate-
gy. The Castro government appears wedded to the
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Table 1
Cuban Hard Currency Current Account
Balance, 1982-87
Trade balance
727
511
82
73
-111
228
Exports
1,627
1,431
1,283
1,356
1,089
1,188
Sugar
793
368
258
187
244
NA
Petroleum
products
216
578
548
573
301
NA
Imports
900
920
1,201
1,283
1,200
960
Net services and
transfers
-368
-273
-321
-226
-371
-1,128
Current account
balance
359
238
-239
-153
-482
-900
Cuban workers to increase productivity.
simultaneous expansion of traditional export prod-
ucts-sugar, fish, nickel, tobacco, coffee, and citrus-
and the development of nontraditional exports rang-
ing from high-technology electronics to scrap indus-
tries. At the same time, Havana has sought to identify
new trading partners and has made efforts to explore
a variety of alternative financing mechanisms in order
to diversify Cuban access to foreign markets. Havana
also has tried to develop an "export mentality" among
Pushing Traditional Exports
The Cuban Government has poured significant invest-
ment funds into expanding production of traditional
export products-particularly sugar-despite contin-
ued adverse weather conditions and unfavorable com-
modity price movements. Havana's recent investments
in several new and renovated sugar mills and hard
currency expenditures on Western sugar harvesting
machinery, for example, were made despite poor long-
term prospects for world sugar prices
The poor performance of sugar has placed increased
pressure on the Cuban Government to maximize
profits from Cuba's nonsugar traditional export prod-
ucts-which made up nearly 25 percent of total
? Fish. Havana's fishing industry has been rebuilding
from a downturn in the late 1970s and early 1980s.
The expansion of fish exports to some 13 percent of
total hard currency exports in the 1984-86 period
has been one of the few bright spots in Havana's
export picture. Havana also has succeeded recently
in boosting shellfish sales, particularly to Spain and
Italy.
? Tobacco. Recent troubles with blue mold disease
and persistent drought have frustrated Cuban at-
tempts to increase yearly output above 40,000 tons.
The inability to secure new technology to produce
cigars and cigarettes also has contributed to the
slow development of the industry. In addition, poor
quality control and distribution problems appear to
have frustrated Cuban efforts to expand tobacco
sales in Europe.
? Coffee. Havana recently has launched a drive to
boost coffee production, using pay hikes for moun-
tain farmers and stricter enforcement of production
quotas. The Cubans also have aggressively market-
ed Cuban coffee abroad, particularly to Japan and
France. Havana imports lesser-quality coffee for
domestic consumption in order to free Cuban coffee
for export. Nevertheless, coffee production and sales
have lagged-consistently contributing less than 5
percent to hard currency receipts.
? Nickel. Cuba has been expanding its nickel facilities
with Soviet financing, equipment, and technical
assistance. Hard currency earnings from nickel
sales, however, have been undercut by trade agree-
ments with Moscow that direct the bulk of nickel
output to the Soviet Union, and by US agreements
with several of its trading partners that prohibit use
of Cuban nickel in steel exports to the United
States.
? Citrus. An experimental program financed largely
by CEMA countries has quadrupled the hectarage
under citrus cultivation since 1969; however, citrus
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Figure 2
Traditional Cuban Exports
Traditional Cuban export products, together with oil reexports,
accounted for over 85 percent of total hard currency export
revenues in 1982. However, earnings from (a) sugar, (b) fishing,
(c) citrus, (d) tobacco, (e) nickel, and (f) coffee show little promise
for significant growth through 1990.
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sales still account for less than 1'perbent of total
Cuban hard currency income. Cuba's =export commit-
ments to the Soviet Bloc, which leave only 5 to 10
percent of citrus output for Western consumption,
have left Havana only limited earnings from this crop.
Generating Nontraditional Exports
Havana also has been working to develop nontradi-
tional export products and services-which account
for about 15 percent of total hard currency export
receipts-to supplement earnings from traditional pri-
mary commodities. The Cuban Government has been
able to direct some of its Soviet Bloc funding and
technical assistance-as well as its scarce hard cur-
rency resources-in the research, development, and
marketing of electronics, biotechnical, medical, and
other products. President Fidel Castro-who is fasci-
nated with grandiose development projects-has sin-
gled out these industries as having outstanding growth
potential in his public addresses.
Biotechnical and Medical Products. A new biotech-
nology center, inaugurated in 1986, was intended to
establish Cuba as a regional and possibly world-class
leader in biotechnology development. So far, however,
that goal has proved elusive. The center was con-
structed at a cost in excess of $100 million and was
designed to consolidate research in medical, agricul-
tural, and industrial applications of molecular biology.
Domestic needs and those of potential Latin Ameri-
Figure 3
Relative Commodity Share of Exports
to the West 1979-1986
Mineral
3
products
Non-sugar
agriculture
Fishing
facilities
Figure 4
Cuban Agricultural Exports
to the West, 1988
can customers motivated Cuba to concentrate on Percent
developing such products as vaccines, interferon and
insulin, plant varieties resistant to regional diseases
and climatic stress, and methods to convert sugarcane
waste to animal feed. Despite high-level government
support, however, Cuba has not been able to meet
world standards for biotechnical production nor trans-
late its research into significant export earnings.
Tobacco
Similarly, Havana's efforts to promote the export of 20
other medical products and equipment have been
impeded by chronic shortages of critical technological
inputs and by intense international competition. Cu-
ban efforts have focused on developing markets for
veterinary and human drugs, optical products, labora-
tory and hospital furniture, and equipment in Latin
Sugar
63
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American and other Third World countries. Cuba has
hosted international trade expositions in the field of
medical technology and has struggled-so far unsuc-
cessfully-to host the International Medical Con-
gress
In the health services field, Havana has actively tried
to establish a "health tourism" industry designed to
offer medical treatment to visiting foreigners in return
for hard currency.
Castro sees successful heart transplant operations
performed in Havana as a way to advertise Cuban
medical technology and the low-cost medical care. US
officials note these efforts have attracted substantial
numbers of patients from the Caribbean and Latin
America. The Cuban Government also has continued
its longstanding program of sending medical person-
nel abroad, although the bulk of these are serving in
countries that generally have been unable to pay for
such services in hard currency.
has helped guide development of the domestic elec-
tronics industry and planned in 1984 to expand
electronics production about 20 percent per year
through 1990,
Havana: Other Efforts To Earn Hard Currency
In addition to the biotechnology, medical goods and
services, and electronics export projects favored by
President Castro, the Cuban press and US Interests
Section report that Havana is spending considerable
resources on developing its tourist industry and mar-
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keting its labor abroad.
Tourism. Tourist service payments ranked among
Cuba's top five hard currency earners in 1986F-
Lack of significant Western investment,
a plethora of transportation and supply problems and
poor hotel services have limited expansion plans so
far, however.
Workers Abroad. Havana sends a corps of techni-
cians, construction workers, and military personnel to
work abroad, often for partial payment in hard
currency. UNECA, a government-controlled corpora-
tion responsible for exporting construction labor, was
targeted to earn $26 million in 1986, with an increase
Official
Cuban statistics indicate, however, that the bulk of
Cuban electronic exports have gone to CEMA trade
partners to settle noncash accounts. Indeed, develop-
ment of a Cuban electronics industry may involve a
net loss of hard currency, because the components for
the assembly of much of this equipment were pur-
chased initially from Western countries for hard
currenc
On the positive
side, Cuba has managed to turn the pirating of US
films from satellites for conversion to video cassette
tapes for local replay and reexport to Latin American
markets into a profitable export enterprise
Better Marketing
Since the mid-1980s, Havana has courted a number
of countries in an effort to diversify its export markets
and broaden commercial ties. The Cuban Govern-
ment has launched a series of international trade
shows both in Havana and abroad and has mobilized
in each subsequent year
For example, Havana receives both hard
currency and oil from Tripoli in exchange for the
services of some 3,500 Cuban civilian technicians and
advisers. Cuban military personnel serving abroad
also earn hard currency for Havana, and we estimate
that Cuban combat troops in Angola cost Luanda
about $150 million yearly with perhaps another $150
million to cover the cost of civilian advisers there. We
believe, however, that Havana has not received regu-
lar hard currency payments from Luanda in recent
years.
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reports.
its network of at least 27 parastatal marketing organi-
zations to make new official trade contacts and to
peddle Cuban products. While these efforts have
resulted in generating a large number of new trade
partners for Cuba, they are primarily financially
strapped Third World nations who can only purchase
Cuban exports on barter terms, according to press
ments.
Havana's efforts to broaden ties in Latin America
have been limited by financial constraints, moreover.
The large markets in Brazil, Argentina, and Mexico
have been particularly attractive to Cuba, but
Havana's inability to finance its exports has helped
thwart several proposed reciprocal trade arrange-
Meanwhile, Havana has continued efforts to evade
the US trade embargo and sell in the US market
through a network of front companies in Latin Ameri-
ca, Western Europe, and Japan. These companies
have tried to redirect Cuban exports such as shellfish
to the United States and to secure high-technology
goods in return.
evade the US embargo.
we believe the Cubans probably
will continue to rely on front company operations to
Attracting Foreign Investment
As part of its overall strategy to promote exports,
Havana has been working to attract foreign investors
to the trade sector
Foreign investment laws,
liberalized in the early 1980s, allow 50 percent foreign
ownership in Cuban joint ventures. Havana also has
sought Western technical expertise for development
projects in the sugar industry and for oil exploration
and drilling activities
Few Western investors have taken advantage of the
joint venture options offered by Havana, however,
Havana's redtape, administrative delays and costs,
Table 2
Market Economy Countries' Purchases
of Cuban Goods, 1986
Japan 18
Spain 14
Switzerland 9
United Kingdom
Algeria
Libya
and investor uncertainty over their legal position in
Cuban courts have sabotaged joint venture projects,
Havana increasingly has been frustrated
tance projects.
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Developing an "Export Mentality"
Recognizing the need for worker participation in 25X1
improving the range and quality of exports, Havana
formed an advisory group last year to educate factory
workers on the need to expand Cuban exports. The
government has held meetings to explain the impor-
tance of exports to the economy and to stress the need
for improved productivity and quality control. In
addition, the advisory group has tried to help soothe
growing domestic dissatisfaction with government
policies that increasingly favor exports over domestic 25X1
consumption of staple foods, textile products, and
other items.
Deficiencies in production management, however,
have presented serious obstacles to the development of
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Cuba: Parastatal Exporting Enterprises
There are at least 27 Cuban state-run organizations
responsible for the development and marketing of
Havana's exports. Openly declared by the Cuban
Government, their operations appear to be confined to
legitimate business transactions while activities in-
cluding embargo evasion, arms transfers, and intelli-
gence are directed to subsidiary front companies.
These companies are.
CONSTRUIMPORT. Construction equipment.
CONSUMIMPORT. Sport articles, handicrafts,
toys.
COPREFIL. Stamps and posters.
CUBAEXPORT. Foodstuffs, rum.
CUBAFRUTAS. Fresh and canned tropical fruits
and vegetables and essential oils.
CUBAINDUSTRIA. Building materials, chemical
products, raw materials, manufactured products, and
machinery.
CUBAMETALES. Metals, oil, and lubricants.
CUBANIQUEL. Minerals.
CUBA TABACO. Cigarettes, cigars, and tobacco
leaves.
CUBA TEX. Clothing, fabrics, and fur articles.
CUBAZUCAR. Sugar and sugar byproducts.
DISTRIBUIDORA DE PELICULAS. Motion pic-
tures ("Motion Picture International Distributor").
ECIMACT. Building construction and urban devel-
opment projects.
ECIMETAL. Construction equipment, technical as-
sistance, and feasibility studies.
ECIQUIM. Project administration and construction
of industrial plants.
EDICIONES CUBANAS. Posters and books ("For-
eign Trade Enterprise for Publications").
EGREM. Music cassettes, records, and printed
music.
EMPRESA CUBANA DE ACUNACIONES. Jewels,
coins, and precious metals ("Cuban Coining
Enterprise' ).
FONDO CUBANO DE BIENES CULTURALES.
Handicrafts ("Cuban Foundation for Cultural
Property').
IMEXIN. Industrial plants, health and educational
centers, and computer systems.
IMEXPAL. Food processing plants.
MARPESCA. Fishing and tug boats, barges, and
recreation yachts.
MEDICUBA. Medicines, eyeglass frames, and lab-
oratory equipment.
TRACTOIMPORT. Agricultural tools and
machinery.
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Cuban Front Companies: Mechanisms for
Expanding Trade
ment plans.
In recent years, Havana has created a network of
more than 150 commercial corporations operating in
15 Latin American countries-with Panama hosting
the greatest number-Tunisia, Canada, Japan, and
much of Western Europe. While the activities of these
firms focus on the acquisition of Western consumer
and producer goods, they also serve as a conduit for
Cuban exports of goods and services to Western
markets. As such, Cuban front companies are ideally
suited to play a key role in Havana's export develop-
exiles visiting Cuba.
These firms are active in a number of legitimate
business transactions, which include:
? Acquisition of Western computers and communica-
tions technology and a variety of other productive
inputs to help modernize the Cuban economy.
? Procurement of Western consumer goods to help
satisfy domestic demands, particularly those of the
elite.
? Generation of hard currency via the promotion of
Cuban tourism abroad and the resale of high-priced
Western goods to tourists and Cuban-American
Many of these firms, however, also use their unoffi-
cial relationship with the Cuban Government to front
for a variety of illegal activities, including:
? Evasion of the US trade embargo-usually through
Panama-to obtain technology spare parts for US
equipment and other goods. In search of hard
currency, the front companies sell products such as
gold, silver, and seafood to US buyers, many of
whom are unaware of the origins of the goods.
? Evasion of restrictions imposed by COCOM-the
NATO Coordinating Committee on Export Con-
trols-which regulates the sale of high-technology
products to Cuba and other Soviet Bloc countries.
Recent economic and political difficulties in Panama
undoubtedly have complicated the already troubled
operations of newly reorganized Cuban front compa-
nies.
we do not foresee any permanent reduc-
tion in the activities of the Cuban front company
network. While the front companies probably provide
only a small amount of badly needed hard currency
for the Cuban Government-sketchy information in-
dicates that CIMEX has earned only about $18
million a year in hard and local currencies since
1979-the companies are self-supporting. More im-
portant, however, Cuban front companies are an
established mechanism to acquire foreign technology
necessary for the expansion of critical exports and
serve to facilitate Cuban exports to the West.
25X1
25X1
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an "export mentality."
The Soviet Perspective
frictions.
Since 1984, there has been significant friction be-
tween Moscow and Havana over Cuban export policy,
judging from Cuban and Soviet press and official
statistics. Cuban President Castro and Vice President
Rodriguez made public statements, during the Mos-
cow CEMA summit in 1984, arguing for diversifica-
tion from traditional agricultural production and to-
ward the development of alternative industries such as
electronics and genetic engineering. Moscow swiftly
rebuffed Havana's plans for export diversification,
however, judging from published summit documents
that stated Cuba should continue to focus on agricul-
ture. We believe that Havana's persistence in invest-
ing in the costly development of nontraditional ex-
ports since 1984 probably has added to bilateral
Moscow has used its considerable economic leverage
to help redirect investment toward more traditional
sectors, and reduce Cuba's diverting of Soviet equip-
ment deliveries to Castro's pet projects. The 15-year
cooperation agreement signed by Moscow and Ha-
vana in late 1984 focused Soviet aid to Cuba on
development priorities in agriculture and the mineral
and energy industries.
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L__ judging from official statistics and press,
the Soviets have exerted increasing pressure on Ha-
vana to meet Cuban trade commitments to the Soviet
Bloc, forcing Havana to concentrate on the expansion
of sugar, nickel, and citrus production in particular.
Prospects
Table 4
Structure of Cuban Hard Currency
Foreign Debt, 1986
Million
US $
Percent of
Total
Total debt
4,683
100
Short term
1,633
35
Medium term
3,050
65
Official debt a
1,991
43
Short term
Medium term
1,991
43
Private debt
2,692
57
Short term
1,633
35
Medium term
1,059
22
is mishandling, and inadequate technology.
Cuban export performance and hard currency earn-
ings are not likely to improve significantly over the
next few years, in our view, despite Havana's efforts.
We believe production and marketing difficulties will
continue to plague both traditional and nontraditional
export industries. For example, international com-
modity analysts expect no significant strengthening of
world sugar prices over the long term, and Havana is
likely to fall far short of its ambitious sugar produc-
tion goals and export commitments. Nontraditional
export development and performance, meanwhile,
probably will be hampered by persistent foreign ex-
change shortages, ill-advised investments, bureaucrat-
Havana's Soviet benefactors are unlikely to provide
the solution for Cuba's export development problems.
Moscow's current moves to tie the bulk of its develop-
ment assistance to specific Cuban projects will give
the Soviets more leverage to refocus Cuban develop-
ment resources on agriculture and import substitution
projects such as energy development and petroleum
refining. At the same time, Soviet investment patterns
and growing pressure on Cuba to meet CEMA trade
obligations are likely to draw Havana even closer
toward trade with the Soviet Bloc at the expense of
exporting to the West for foreign exchange.
new credits to be extended to Havana.
Moreover, the outlook for significant new Western
funding for Cuban export development programs is
dim. Havana's uncompromising positions at recent
rescheduling negotiations covering some $6 billion in
overdue debt and its trade policy failures will continue
to alienate some of Cuba's most important Western
official and commercial creditors. While rescheduling
negotiations remain in limbo, we expect no significant
a Five nations hold 70 percent of total official debt:
Spain (24), Japan (19), France (17), Italy (5), and Austria (4).
We believe the Castro regime-constrained by slow
export revenue growth and limited foreign assis-
tance-will have little choice but to further tighten
Western imports. The resultant shortage of Western
productive inputs is likely to cause Cuban economic
growth to contract even more and will, in turn, lead to
tighter austerity and increasing unemployment.
This expected economic contraction is likely to fuel
further popular discontent with Cuban economic con-
ditions, already at the highest level since the 1959
revolution, according to the US Interests Section,
foreign visitors Discon-
tent is likely to be manifested in further increases in
antisocial behavior-including juvenile delinquency,
vandalism, economic sabotage, and other crimes-
and in growing worker apathy and poorly motivated
management.
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Table 5
Cuba's Relative Debt Position, 1988
Debt
(billion
US $)
Debt/Capita
(US $)
1988 Scheduled
Debt Service a/
Exports
(percent)
Cuba
6.0
580
159
Argentina
57.0
1,806
84
Brazil
177.5
780
76
Chile
19.9
1,571
59
Costa Rica
4.4
1,506
50
Dominican
Republic
3.1
427
20
Ecuador
10.7
1,046
62
Guatemala
3.1
349
53
Jamaica
3.8
1,554
38
Mexico
101.7
12,175
52
Nicaragua
6.0
1,761
213
Peru
16.0
751
84
Venezuela
38.0
2,024
47
a Does not include payment arrears from previous years. For Cuba,
scheduled 1988 obligations total $1.7 billion, while arrears from the
end of 1987 were $2.5 billion.
Havana's desire to gain access to the US market could
push the Castro regime to pursue warmer relations
with Washington, particularly during the first year of
a new US administration.
Havana is courting Wash-
ington to improve economic relations, including the
elimination of some of the provisions of the US trade
embargo. In addition, the Castro regime wants to
maintain the emigration agreement with the United
States to provide an outlet for Cubans disgruntled
with the economic situation. In the meantime, we
expect Havana to continue to pursue the evasion of
the US embargo through its international network of
front companies.
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Secret
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